Strong global demand, some supply constraints in the world market, and a commitment from U.S. suppliers to reliably serve overseas channels led to a record year for dairy exports in 2004.

U.S. dairy exports were $1.49 billion, up 39 percent from the prior year, according to the U.S. Dairy Export Council (USDEC). By volume, exports were up in most major product categories.

On an aggregate volume basis, U.S. suppliers exported a record-high 1.562 billion lbs. of total milk solids in 2004, up 31 percent from 2003. With this dramatic growth, exports represented 7.4 percent of U.S. milk solids production, compared with 5.6 percent in 2003.

The longer-term growth record may be even more remarkable; in the last five years, exports have increased by 560 million lbs. of milk solids, while U.S. milk production has expanded by only 1.087 billion lbs. of milk solids. That means more than half of the incremental supply growth in the U.S. dairy industry over the last five years has been sold into overseas markets.

Meanwhile, U.S. imports increased just 2 percent last year, to 928 million lbs. of total milk solids. The U.S. dairy trade surplus grew to 634 million lbs. of milk solids, up from 281 million lbs. in 2003.

“Last year’s success tells us three things,” says Tom Suber, president of the U.S. Dairy Export Council. “First, that trade agreements work. For instance, exports were up significantly to Mexico, where NAFTA gives us preferential access. We also saw increased sales to Chile, where we received improved market access in the new bilateral trade agreement. In addition, China has become a significant and growing market for us, particularly since it lowered import tariffs as part of its agreement to join the World Trade Organization (WTO) in 2000.

“Secondly, global dairy supply was pinched by lower milk production in Australia,” Suber continues. “Combined with the existing WTO limits on export subsidies from Europe and Canada, supply couldn’t keep up with steadily increasing demand. Rising global market prices, especially for dairy proteins, was the result. A weaker dollar also contributed somewhat to the firm global dairy prices. Consequently, we saw what many believed was a theoretical impossibility: strong U.S. dairy exports in the presence of firm U.S. domestic market prices.

“Yet, if these conditions had prevailed five years ago, U.S. suppliers might have had greater difficulty capitalizing on their opportunities, as most were not ready to commit to and service overseas buyers. In 2004, despite attractive returns inside the United States, many suppliers maintained their sales to the overseas customers they had worked hard to establish. Whether by standardizing the protein in their milk powder or maintaining overseas allocations for scarce supply, U.S. suppliers were more committed than ever to staying in the market,” Suber says.

The U.S. faces twin challenges to maintain and expand the role that exports play in the growth of American dairy processors and farmers, he adds.

“First, the industry must continue to work with overseas buyers to meet their product and price stability needs,” he says. “Further, it must work with government negotiators and Congress to achieve a result in the current Doha Round of WTO trade talks that permanently eliminates export subsidies and creates greater access to all dairy markets, especially the high consuming ones in Canada and Europe.”